Alibaba Group Holding Limited (BABA) on Q2 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Alibaba's Group September Quarter 2020 Results Conference Call. . I'd now like to turn the call over to Mr. Rob Lin, Head of Investor Relations of Alibaba Group. Please go ahead. Robert Lin: Good evening and good morning, everyone, and welcome to Alibaba Group's September Quarter 2020 Results Conference Call. With us today are Daniel Zhang, Chairman and CEO; Joe Tsai, Executive Vice Chairman; Maggie Wu, CFO. This call is also being webcast from the IR section of our corporate website. A replay of the call will be available on our website later today. Daniel Zhang: Thanks, Rob. Hello, everyone. Thanks for joining our earnings call today. Alibaba has delivered another strong quarter, thanks to deeper adoption accelerated by COVID and the rapid economic recovery in China following effective control of the pandemic. According to National Bureau of Statistics, China's economy continued to recover in the September quarter with GDP growth reaching 4.9% year-over-year and the retail sales resuming positive growth year-over-year. Digitalization is now universally recognized as a way forward in the post-pandemic world. And as I shared during Investor Day, Alibaba is best positioned to enable everyone to capture the opportunity of digitization. Our China retail marketplaces continued its healthy growth this quarter. Annual active consumers on our China retail marketplaces reached 757 million for the 12 months ended September 30, 2020, representing a quarterly net increase of 15 million, while our mobile MAUs reached 881 million. This reflects Taobao's continuing strong consumer mind share, healthy user stickiness and engaging user experience as a leading consumer community globally. Maggie Wu: Thank you, Daniel. Thank you, everyone, for joining us. Let me start with the financial highlights for the quarter. During the September quarter, we continued to acquire new users and consumers from both top-tier cities and less developed areas in China. Average spending of consumers on our China retail marketplaces continued to improve across all city tiers which was primarily driven by increase in purchase frequency, reflecting our ongoing success in broadening product offerings, improving user engagement and meeting diverse customer needs. Our total revenue was RMB155 billion, up 30% year-on-year. The increase was mainly driven by the robust growth of our China commerce retail, cloud computing and Cainiao logistics. A - Robert Lin: Hi, everyone. Similar to prior quarters, for today's call, you are welcome to ask questions in Chinese or English. A third-party translator will provide consecutive interpretation for the Q&A session. And our management will address your questions in the language you asked. Please note that this translation is for convenience purpose only. In the case of any discrepancies, our management's statement in the original language will prevail. So operator, now please connect speaker and SI conference lines. Please start the Q&A session already. Operator: . Our first question comes from the line of Ben Binnie Wong from HSBC. Binnie Wong: Congrats on another solid quarter. And thank you for the additional metrics like Taobao GMV, like GMV this quarter, which are very helpful. The question here is on Sun Art. What is the ultimate goal of the integration here? And second is that as we are expanding into more self-operated direct sales business, what are the challenges we see? Say, how do you manage like traffic allocation to our third-party merchants? Say, when a third-party merchant also selling the same category or even same SKU with our 1P products, how do we manage that? Daniel Zhang: Thank you. This is Daniel. Let me answer your questions. First for Sun Art, as I said in my script, I think the purpose of our investment is to leverage Sun Art footprint across the country and leverage their supply chain to generate more synergies with the multiple businesses in Alibaba. And also, we want to further upgrade the Sun Art business model to a more digital -- fully digitalized operations. And today, we also want to even upgrade the existing hypermart to a model more community driven and to attract more young people back to stores. So that's the primary reason that -- these are primary reasons why we further invest in Sun Art, because we -- as you know, that if you want to try to rebuild such a footprint across the country, actually, it's -- obviously, it's very difficult. And we believe this is a very important physical network across the country which will be further integrated with a digital network, a digital platform. And this supply chain also highly complementary to our business. In terms of the 1P and the 3P conflict, I will say actually, for Alibaba, we always believe in marketplace model. We always believe in partnership. So 3P is our priority. And we do see in some categories -- in different categories actually we can leverage the power of retailers and -- to create a more integrated experience for our customers, such as fresh foods, fresh produce, such as groceries, because we have many bulky groceries where the logistic cost is quite high, while the -- it's very difficult to do a third-party model and -- based on a fast delivery network -- country fast delivery network. So in this case, we will further integrate our 1P with our off-line partners and to give people better experiences. So it's a mixture, but we still believe in partnership, and we think to enable the merchant is our first priority. And even in the 1P business, our model is quite different with other 1P. What we do is work closely with our suppliers, with our brand partners, and not only help them to sell but also help them to market their product and market their brand. And we'll also share some of the sales data to our supplier and to our brand partners when we help them to do the retail sales. So it's quite different 1P model. Operator: Our next question comes from the line of Thomas Chong from Jefferies. Thomas Chong: Congratulations on a very solid set of results. My question is about the community group purchase. We have been seeing that a number of different players have been spending a lot of resources in community good purchase initiative. Just want to get some color. What are our strategies on this front? And a quick question is about on the cloud computing side. How should we think about the profitability trend in the second half given it's going to be profitable and about the long-term margin trend for this business? Operator: Ladies and gentlemen, your speaker line is experiencing some technical difficulties. . Robert Lin: Amanda? Hello? This is Rob. Thomas, given the technical difficulties, do you mind repeating your questions again? Thomas Chong: Yes. Sure, Rob. Congratulations for having a very solid set of results. My question is about community group purchase. Given that a lot of the industry players are spending a lot of resources in this area, how should we think about our strategies in this initiatives? And my second question is about cloud computing. How should we think about the profitability trend in the second half? And in terms of the margin profile, how we -- should we compare with overseas peers in the long run? Daniel Zhang: For the first question, community buying, as you said, today the market is very hot, and many players are already entering into this market. And we -- actually, we are -- also track the progress to cover the change in the market very closely, and we think that this is a very, very interesting model. And -- but as we always said, at the end of the day, we have to evaluate the effectiveness of this model by customer experience and customer value. So for Alibaba, we strongly believe this is highly relevant to consumption and relevant to the low-tier cities, even rural areas. So we are very committed to the new, I mean, initiatives and also evolving the new models to serve the customers in these areas. And if you look at what we have in Alibaba ecosystem, actually we have another infrastructure which is very, very critical for the penetration of the low-tier cities and even rural areas with a new model and including the community buying. So I think now it's still early stage, and all the people are trying to target the customers first. But I think that the customer is always easy to change if somebody come and give them better value. So we are well positioned, and we will go after this. Maggie Wu: Regarding your second question on the -- okay. So Thomas, this is Maggie. Regarding to your second question of the profitability, first, as you can see from our September quarter reporting, cloud computing is very close to be profitable. So this quarter, we reported a loss of around RMB150 million, which represents negative 1% of EBITDA margin. So we definitely expect to see the profitability in the following two quarters. You asked about the longer-term margin level. As I talked about during the Investor Day, we don't see any reason that for long term, Alibaba cloud computing cannot reach to the margin level that we see in other peer companies. Before that, we're going to continue to focus on expanding our cloud computing market leadership and also grow our profit. Thank you. Operator: Our next question comes from the line of Mark Mahaney from RBC. Mark Mahaney: Two questions, please. You talked about this recent acquisition in the travel retail space. How big of an opportunity do you think this is for the company? And how can Alibaba differentiate itself in that sector? And then secondly, can you just address the question of whether pre -- online retail growth trends, do you think that they are sustainably back to pre-COVID levels? Daniel Zhang: Thanks for the questions. I think for the first question, as you may know, that China announced a master plan to transform the entire island of Hainan into a free trade port. I think that this is a very important step to grow Hainan for another free trade port. So for Alibaba, we strongly believe that in a free trade port, our duty-free business, our travel retail business, is very, very important and -- because it's obviously more convenient for Chinese consumers to go to Hainan instead of go to other destinations to enjoy the shopping. So that's why we invest in duty free. We are very happy to partner with Dufry to work with them to build a JV in China to leverage their supply chain in travel retail and to grow the business together with them in China. Of course, we are also working closely with the local partners to make sure we have the right setup to grow the travel retail business. And in Alibaba, as I said, we have a lot of infrastructure relevant to these, I mean, to any new opportunities, including this travel retail, because we have digital wallet, we have our travel platform and we have our China retail marketplaces, which is a huge interface for the hundreds of millions of consumers. Many of them could be a traveler and -- to a duty-free store in a free trade port. So I think we will try to leverage what we have in our big family to grow the travel retail business. Thank you. Yes. For your second question, firstly, obviously this, I mean, pandemic accelerate the digitalization pace, and the online shopping become a necessity for more and more citizens. And if you look at -- their purchase categories even expanded from apparel, consumer electronics, FMCGs to food, beverage, fresh produce, so on and so forth. So we do believe this -- I mean, this pandemic actually accelerate and the firm further penetrated the customers to encourage them to shop in a digital way. And if you look at the results in recent quarters -- in this quarter, actually we believe that we have already in China, because of the effective control of the pandemic, we -- the people's lifestyle had come back to normal, but their habit is not leaving us away. So people continue and even enhance their purchasing behaviors online. This is what we observed. Thank you. Operator: Next question comes from the line of Gregory Zhao from Barclays. Gregory Zhao: Thank you. My first question has to do with 11.11 and looking at the Taobao guidelines. I'm wondering if you can speak to any impact that there may be on advertising or revenues with that development. And as a follow-up question, I'd like to understand more about the impact. You spoke of the new regulations being worked out for microlending in China. I'm wondering what percentage of GMV on your retail platforms is funded via Huabei and Jiebei and if the tightening -- potential tightening of restrictions may have an impact on GMV growth. Daniel Zhang: Thank you. Well, 11.11 is not just a shopping festival per se. It's also about engagement. It's about creating fun and interactive experiences for consumers. And with the new upgrade, consumer time spent on the platform and page views have increased, which, of course, is good for users, for engagement. And there's also a good opportunity to drive higher conversion as well. Now when it comes to search and browsing, these are 2 services that really serve different kinds of consumers. Search serves consumers who come with a clear purchase to -- a clear intention to make a particular purchase. They could be looking for a mobile phone, they could be looking for a winter coat. Whereas, recommendation feeds are there to create or to stimulate new consumption demand, things that the consumer didn't necessarily have on their mind when they came on the platform. So the 2 functions are mutually complementary. As you heard from Maggie in her earlier presentation, growth in advertising revenues continues to be healthy, and the performance of our recommendation feeds is good with the higher click-through rates and good opportunities for monetization going forward. And on your second question, throughout the entire history of Alibaba and with the creation of Alipay, something fundamentally important has been options available to consumers. They're free to make their choices to how they want to make their payments and fund their payments. It could be for their debit card, which is linked to their account; from a credit card. Later on, we came up with Yu'ebao and also Huabei. So on Alipay, consumers have a whole range of different options, and they can freely choose whatever option they like to fund their purchase. And the same is also true of the Alibaba marketplaces. We're providing a broad range of options and choices for consumers and providing them with a convenient and a good shopping experience, and we'll continue to focus on providing that kind of optimal experience and freedom of choice. Now you asked about the percentage of GMV that's funded via Huabei. That's not actually something that we track. What we do track is the success rate of payments and the purchases and also the existence of that diverse range of different options and freedom for our users. Operator: Our next question comes from the line of Eddie Leung from Bank of America Merrill Lynch. Eddie Leung: Just two quick questions. The first one is on Taobao Deal. I'm just wondering, when you talk about the new adds, how many of the users are actually historically already shopping on Taobao? Because it seems like you hinted that there is actually not much cannibalization between the 2 channels. Just -- so just wondering if you can share more color on the user profile of the new adds and how that interacts with the traditional Tmall and Taobao channel. And then the other quick question is on perhaps R&D spending. I think Maggie mentioned about the investment in R&D. I don't know whether it's by coincidence because when you look at your innovation initiative EBITDA margin, it seems like it came down a bit. So just wondering if that's one of the reason. And if so, what are some of the projects you guys are investing in under that segment? Daniel Zhang: Thank you, Eddie. Let me answer your first question. I think Maggie will address your second one. In terms of the Taobao Deals user base, I would say actually, when we grow this new business, we view this -- from an operating perspective, we view this as an independent business. So we never try to attract people from existing Taobao mobile app or to Taobao Deal. Instead, we do online marketing, we do interactive user engagement features, so on and so forth, to attract the relative users to the Taobao Deal app. And the value proposition of Taobao deal is value for money. So it's very clear and well positioned. So people go to Taobao Deals. They can enjoy their experiences with a lot of selections but all value for money. So as a result, actually we do see a very fast-growing Taobao mobile -- Taobao Deal mobile MAU. So as I said, this September, the MAU reached 70 million, net -- adding 30 million as compared to 3 months ago. So if you look at the user base of Taobao, actually we -- in Taobao, we cover a very high percentage of China Internet users. So back to your question, the overlap. I do believe there is some overlap. I think it's impossible for Taobao Deal to attract a brand-new -- 100% brand-new customers because Taobao mobile app already has a very high penetration in China mobile Internet. But I think we -- what we focus is the total spending. If we add together the spending of Taobao when people have -- if they have both Taobao mobile app and the Taobao Deal app, how their spending change. And we are happy to see people tend to spend more if they have both apps. But at the same time, we do have a lot of customers who are newly recruited by our Taobao Deal app. And we will continue to make our efforts. At the end of the day, the valuation is the total spending and how can we have more wallet share if we can serve people with very different, I mean, value proposition services. Thank you. Maggie Wu: Okay. Eddie, on your second question about the R&D, the answer is yes, we continue to increase our investment in R&D area. This reflected in product development cost. And also, like you said, if you look at the innovation initiatives, the losses in that sector -- although it's a small segment, the losses expanded. So we had set up the -- so including these innovation initiatives, they're our Bingbing, they're our DAMO Academy. So we set up DAMO Academy 2 -- 3 years ago. And by that time, the goal was that DAMO should be focusing on the advanced technology research development, and it should live longer than even the group, where we said we aim to list 1 in 2 years. And what projects are in it? Of course, we can't open all of these project books. But in September, we did have the conference held in Hangzhou, and there were some introductions of DAMO research as well. So we can talk about that afterwards. DAMO Academy has many labs. We have approximately 15 labs and doing research in many technology areas. We mentioned about the logistics robust , right, AI related and voice recognition. And so they have a full list of research projects going on. Operator: Our next question comes from the line of Alex Yao from JPMorgan. Alex Yao: Congrats on the very strong bottom line growth. If I look at the quarterly numbers from very high level, my read is there are two different trends that drive the numbers. And number one is a moderate growth for the marketplace-based e-commerce business with perhaps a 4 to 5 percentage point margin decline, i.e., that the platforms such as Taobao and the Tmall are growing low teens at the profits because the margin is going down. And then the second trend is pretty much everything else contribute more profit or less loss. So blended result was very healthy. So my question number one is to what extent is the marketplace, e-commerce and margin decline structural versus a one-off? Or perhaps there are still lingering impact from the COVID? Or is it more because of the step-up in new initiatives such as Taobao Deal or Juhuasuan? The second part of the question is to what extent is the noncore -- nonmarketplace business and margin improvement structural, i.e., they are moving into the financial return stage, versus just a group-level financial budget allocation to balance the group-level financial performance? Thank you. Maggie Wu: Okay. Alex to answer your question, I think, first of all, I want to reiterate that we look at the business as a holistic business. The group is becoming so big. We have so many business lines that when we talk about Alibaba, you tell H-to-H growth, we do look at overall. At the same time, of course, we have the -- a target operating. The emphasis is on each of different businesses. So you talked about core -- our core market-based adjusted EBITDA growth. I think before I address that, people should look at our overall profit growth of 28% year-on-year. So that is probably one of the few among the peers, global technology peers, that still have over 20% growth nowadays. And then market-based business adjusted EBITDA, I should say that the growth rate for that part of EBITDA also is -- reflects our investment in our core. So if you look at our Juhuasuan, right, and also you mentioned Juhuasuan and also our investment in sales and marketing to acquire customers, new buyers, these are all the investments we voluntarily make to expand the business. And so I think whether it's structural -- I should say that they're a big part of that investment, our discretionary. And then for the noncore business, you've seen that within the core commerce, right, there are many new initiatives, including local consumer service, Lazada, New Retail, direct import, logistics, China, et cetera, almost every one of these businesses, they're showing narrowing of their losses. So this is why when you look at the combined losses for this noncore -- this is also core but non-Taobao and Tmall. This part of the combined loss was approximately CNY5 billion compared to CNY7 billion the same quarter last year. And then we go beyond the -- our core commerce to the other areas like cloud computing, DME, innovation initiatives, the combined losses also decreased quite significantly because of this business either getting the scale effect or the operating efficiency. The leverage come out. So the combined losses for this part was CNY4.7 billion versus CNY6.5 billion the same quarter previous year. Operator: Our last question comes from Alicia Yap from Citi Group. Alicia Yap: Thank you. My question has to do with GMV growth in particular on Taobao. We noted from your press release that in the September quarter, you reported GMV growth on Taobao as being in the high -- as being in the teens. I'd like to know if that includes Taobao Deals or not. I'd also like to know on Taobao Deals what the monetization model is there. Are you currently monetizing Taobao Deals? Are you still in an early period of development where you're trying to make things easier for the merchants and there's little or no monetization happening today? And how many further quarters do you think you can sustain that relatively high rate of growth in Taobao's GMV? Daniel Zhang: Thank you. So when it comes to GMV and the way we look at GMV, we have Taobao and Tmall, and we look at that GMV separately. And there may be some merchants on Taobao who are also present on Taobao Deals, but they would have been separately recruited and onboarded onto there. So that's how we look at GMV, and it's not by mobile app. In terms of where Taobao Deals is at to date in the overall China retail marketplace, it's growing. It's in a phase of very fast growth in terms of user acquisition. The numbers there are growing fast, and we're working now on driving GMV growth. Operator: All right. Thank you. So ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.
Alibaba Shares Drop 5% Following Earnings
Alibaba (NYSE:BABA) released its financial results for the first quarter ending March 31, 2024, showing earnings that did not meet analyst expectations. As a result, shares fell nearly 5% pre-market today.
The Chinese e-commerce leader reported an adjusted earnings per share (EPS) of RMB10.14 (US$1.40), slightly below the anticipated RMB10.27. Despite the earnings shortfall, Alibaba's revenue increased by 7% to RMB221.87 billion (US$30,729 million), which was just above the expected RMB220.32 billion.
CEO Eddie Wu explained the quarter’s performance with a focus on enhancing customer experience and expanding the company's commerce operations both in China and internationally.
The modest revenue growth, described by CFO Toby Xu as a sign of returning growth, contrasted with a significant 96% year-over-year decline in net income. This decrease was largely due to a net loss from investments in publicly traded companies, a stark reversal from the net gain reported in the same quarter the previous year.
Alibaba Group Holdings: The Undervalued Gem in China's Market
Alibaba Group Holdings: A Key Undervalued Stock in the Chinese Market
In the recent analysis by InvestorPlace, Alibaba Group Holdings (NYSE:BABA) was spotlighted as a key undervalued stock in the Chinese market, a perspective that gains traction when considering the company's financial achievements and strategic initiatives amidst the economic challenges posed by government regulations and property pricing issues in the post-COVID-19 era. Alibaba, with its diverse range of services spanning e-commerce, media, entertainment, and cloud computing, has demonstrated remarkable financial resilience and growth potential, making it a standout candidate for investors eyeing opportunities in the Chinese market.
For fiscal 2024, Alibaba reported a revenue of approximately $62.9 billion, marking an 11% increase from the previous year. This growth is significant, reflecting the company's ability to expand its business and increase sales despite the economic challenges. Furthermore, Alibaba's free cash flow, a critical indicator of financial health and the company's ability to invest in future growth, surged by 46% year-over-year to about $11.6 billion. This substantial increase in free cash flow highlights Alibaba's strong operational efficiency and its capacity to generate cash from its operations.
Despite these strong financial indicators, Alibaba's stock price experienced a downturn, closing at approximately $79.10, a decline of about 3.01% from its previous close. This decline in stock price, coupled with a price-to-earnings (P/E) ratio of 17.3, suggests that Alibaba's stock may indeed be undervalued. The P/E ratio, which compares a company's stock price to its earnings per share, is a widely used metric to gauge a stock's valuation. A P/E ratio of 17.3, in the context of Alibaba's financial performance and growth prospects, indicates that the stock might be priced lower than its actual worth.
Moreover, Alibaba's strategic investment of $1 billion in its partners to enhance the ecosystem of its emerging cloud platform is a testament to the company's forward-looking approach and commitment to securing its future growth. This investment not only strengthens Alibaba's position in the cloud computing sector but also signals its intention to diversify and solidify its revenue streams further.
While the broader economic and regulatory environment in China presents challenges, Alibaba's robust financial performance, strategic investments, and the current valuation of its stock present a compelling case for investors. The company's ability to navigate through economic uncertainties, coupled with its strong growth potential, makes Alibaba an attractive investment option for those looking to capitalize on opportunities within the Chinese market.
Alibaba's Bold $4.8 Billion Share Buyback Strategy in 2024
Alibaba's Aggressive Share Buyback Strategy
Alibaba (BABA:NYSE), the Chinese e-commerce behemoth, has made headlines with its aggressive share buyback strategy, spending a whopping $4.8 billion in the first quarter of 2024 alone. This move, as reported by the Wall Street Journal on April 3, 2024, is a clear indicator of Alibaba's strong belief in its financial stability and optimistic outlook for the future. The decision to execute its second highest quarterly buyback on record is not just a financial maneuver but a bold statement of confidence to its investors and the market at large.
The rationale behind such a significant buyback can be better understood by looking at Alibaba's recent financial performance. The company has reported a notable revenue growth of 15.82% for the quarter, a figure that underscores its ability to generate sales and expand its market presence. More impressively, Alibaba's gross profit growth surged by 22.33%, indicating not only increased sales but also improved efficiency in managing its cost of goods sold, thereby enhancing its profitability margin.
However, it's important to note that Alibaba's financial journey isn't devoid of challenges. The company faced a steep decline in net income growth, which plummeted by 47.73%. This drop, alongside a 32.97% decrease in operating income growth, signals potential pressures on the company's earnings, possibly due to increased operational costs or other financial headwinds. Despite these hurdles, Alibaba's strategic focus on long-term growth is evident in its slight asset growth of 0.52% and a robust free cash flow growth of 31.45%, the latter being a critical indicator of the company's ability to generate cash from its operations.
The mixed financial performance, characterized by strong revenue and gross profit growth against the backdrop of declining net and operating income, paints a complex picture. Yet, Alibaba's decision to proceed with a significant share buyback reflects its management's belief in the company's intrinsic value and future growth potential. By reducing the number of shares outstanding, Alibaba not only aims to increase shareholder value but also sends a strong signal of confidence in its financial health and strategic direction. This move, coupled with the company's ability to maintain a healthy cash flow, positions Alibaba favorably in the eyes of investors, despite the challenges it faces.
Alibaba Misses Q4 Results, Announces $25B Buyback Expansion
Alibaba (NYSE:BABA) disclosed its financial results for the quarter ending December 31, revealing earnings per share (EPS) of RMB18.97, below the anticipated RMB19.17. The company's revenue was RMB260.35 billion, narrowly missing the expected RMB260.65 billion. Following the announcement, shares fell by more than 5% in pre-market trading.
The group's Taobao and Tmall platforms reported a 32% quarter-over-quarter revenue rise to 129.07 billion yuan, though this was below the forecasted 133.33 billion yuan.
Meanwhile, Alibaba's International Digital Commerce Group saw its revenue jump by 16% quarter-over-quarter to 28.52 billion yuan, surpassing the expected 27.2 billion yuan.
To boost shareholder value, Alibaba declared a significant $25 billion expansion of its share repurchase program.
Alibaba Downgraded at Bernstein
Bernstein analysts downgraded Alibaba (NYSE:BABA) stock despite its "very cheap" valuation. They shifted from an Outperform rating to a Market Perform rating and reduced their price target by $32 to $98 per share.
The decision to downgrade Alibaba was based on the belief that the stock had already factored in sustained low growth and that the reopening of the economy would contribute to improved growth through a better category mix. However, the stock has been trading within a range since then, and while it remains undervalued, the previously assumed scenario of perpetual low growth is no longer considered an aggressive bear case, according to Bernstein’s note.
The analysts also highlight the risk of a "value trap," as quarterly comps are expected to become more challenging going forward. Furthermore, the note suggests that Alibaba's challenges extend beyond a lack of user traffic. There are concerns regarding merchant crowding, which drives up search costs and puts pressure on merchant return on investment (ROI).
Alibaba Downgraded at Bernstein
Bernstein analysts downgraded Alibaba (NYSE:BABA) stock despite its "very cheap" valuation. They shifted from an Outperform rating to a Market Perform rating and reduced their price target by $32 to $98 per share.
The decision to downgrade Alibaba was based on the belief that the stock had already factored in sustained low growth and that the reopening of the economy would contribute to improved growth through a better category mix. However, the stock has been trading within a range since then, and while it remains undervalued, the previously assumed scenario of perpetual low growth is no longer considered an aggressive bear case, according to Bernstein’s note.
The analysts also highlight the risk of a "value trap," as quarterly comps are expected to become more challenging going forward. Furthermore, the note suggests that Alibaba's challenges extend beyond a lack of user traffic. There are concerns regarding merchant crowding, which drives up search costs and puts pressure on merchant return on investment (ROI).
Alibaba Shares Surge on a Split Plan into 6 Units
Alibaba (NYSE:BABA) shares surged over 14% on Tuesday following a Bloomberg News report that the company is planning to divide its business into six new units to boost its declining share price. Each unit may pursue independent fundraising and initial public offerings (IPOs) when the timing is appropriate, as per CEO Daniel Zhang.
While e-commerce remains the core business, Alibaba has made significant strides in cloud and media. Zhang will head the cloud intelligence division, highlighting the significance of cloud and AI. Jiang Fan is expected to lead the digital business unit, and Trudy Dai will likely head the Taobao Tmall online shopping division.
Since founder Jack Ma criticized regulators and banks in China in a speech in November 2020, shares in Alibaba have plummeted by over 70%. Additionally, a planned $37 billion initial public offering for Ant Financial, an affiliate of Alibaba that operates Alipay, the world's largest mobile payment platform, was canceled due to Ma's comments. As a result of the controversy, Chinese officials initiated a wider crackdown on the country's most influential tech firms. Although Ma has largely remained outside of China since then, he recently visited a school in his hometown of Hangzhou, where Alibaba's headquarters are located.
